Lobo v Baganda Butchers, Limited and Others (Civil Appeal No. 6 of 1947) [1947] EACA 3 (1 January 1947)

# **COURT OF APPEAL FOR EASTERN AFRICA**

Before SIR G. GRAHAM PAUL, C. J. (Tanganyika), EDWARDS, C. J. (Uganda), and PEARSON, J. (Uganda)

C. P. LOBO, Appellant (Original Plaintiff)

1. THE BAGANDA BUTCHERS, LIMITED,

2. MUSA SEBADDUKA,

3. AMOSI NAMANYAWATO,

### Respondents (Original Defendants)

## Civil Appeal No. 6 of 1947

## (Appeal from decision of H. M. High Court of Uganda)

Claim of money—Promissory note—Interest at 48% p.a.—Harsh and unconscionable—Civil Procedure Ordinance (Uganda) S. 26 (1)—Reasonable rate of interest 24% p.a.

The appellant claimed Sh. 2,500 from the defendants on a promissory note which had been dishonoured. The facts were that the appellant had lent Sh. 5,000 to the first defendant upon two promissory notes of which the note sued on was one, and that interest at the rate of 96% p.a. had been charged for a time and subsequently reduced to $48\%$ p.a.

The first defendant pleaded that the rate of interest was harsh and unconscionable and relied on S. 26 (1) C. P. Ord.

The Court found for the defendant and held that 24% p.a. was a reasonable rate of interest.

The appellant appealed.

Held (30-4-47).-(1) That by S. 26 C. P. Ordinance a discretion is vested in the Court to say what rate of interest is harsh and unconscionable irrespective of the practice of people lending money in the country.

(2) That there was nothing to show that the Court had wrongly exercised its discretion. Appeal dismissed.

Macken for the appellant.

# Wilkinson (M. L. Patel with him) for the respondents.

SIR G. GRAHAM PAUL, C. J.—The plaintiff in this suit claimed the sum of Sh. 2,500 being the amount of a promissory note made at Kampala on 1st May, 1945, by the first defendant and duly endorsed by the other defendants, the note having been presented and dishonoured by non-payment.

In the Court below the defendants raised certain technical objections in regard to the promissory note, but the learned Judge repelled these objections and they are not before this Court.

The issue in this appeal is quite a short one. The learned Judge went into the facts of the transaction in respect of which the promissory note had been granted. The main fact was that the plaintiffs had advanced to the first defendant Sh. 5,000 upon two promissory notes of which the note sued upon was one. The learned Judge found that interest at the rate of 8 per cent per month, or 96 per cent per annum, had been charged for part of the time. Later it was reduced to 4 per cent per month or 48 per cent per annum. During ten months the plaintiff had received by way of interest Sh. 3,200 on the loan of Sh. 5,000 or 64 per cent of the capital sum.

The first defendant pleaded that the interest paid had been paid at a harshand unconscionable rate and that accounts should be taken and relief given.

This defence was open to the first defendant in view of section 26 (1) of the Civil Procedure Ordinance which is as follows: -

"Where an agreement for the payment of interest is sought to be enforced and the Court is of opinion that the rate agreed to be paid is harsh and unconscionable and ought not to be enforced by legal process, the Court may give judgment for the payment of interest at such a rate as it may think just."

Acting under that sub-section, the Court below gave judgment for the plaintiff for Sh. 1,400 being the principal sum of Sh. 2,500 less the difference between the sum actually paid at the agreed rate and the sum which should have been paid at the reasonable rate of interest, which the Court held to be 24 per cent per annum. Judgment was also given for Sh. 26 being rating charges but there is no issue as to these. The appellant in this appeal attacks only the reduction made in the interest.

In dealing with this question, one or two observations seem to me necessary in regard to section 26 (1). Counsel for the appellant has informed us that in 1940 there was under consideration the introduction of a Money-Lenders Ordinance in Uganda, but it was decided not to introduce such an Ordinance and instead Section 26 (1) of the Civil Procedure Ordinance was enacted. I have not checked the accuracy of that information, but I accept what appellant's counsel has told us.

I asked counsel on both sides if any other case had come before the Courts under this section and I was informed that perhaps one other case had been before the Courts and the judgment had followed the judgment in the present case. I have been unable to find any other case and I must treat this present case as the first which has come before the Courts, under the section.

Counsel for the appellant referred at some length to Section 16 of the Indian Contract Act as the "background" of Section 26 (1). I was quite unable to follow his argument to that effect. To my mind, Section 16 of the Indian Contract Act and any cases decided under it have nothing whatever to do with the issue now before the Court.

Further, as it appears to me, the English Money-Lenders Acts and cases decided under them have very little to do with the issue before us, and for this reason. The Money-Lenders Acts are the result of a long history of usury in England, a history in which increasing education and sophistication of the people are reflected in the changing legislation dealing with usury. If and when the Government of Uganda decides that the general standard of education and sophistication makes it desirable to have a Money-Lenders Ordinance in Uganda, one will, no doubt, be enacted, but that time apparently is not yet, and it is in my view quite wrong to suggest that English decisions as regards Money-lenders' transactions are at all helpful in this case. In England, money-lending as a trade, after many generations, has been officially recognized, and money-lenders there have legislation governing and restricting their activities, and rates of interest considered reasonable in England do not help us in Uganda where money-lending as a trade has not yet received any legislative recognition.

In these circumstances Section 26 (1) puts upon the Courts a very difficult responsibility. The time will come no doubt when precedents of the Courts' decisions under this section will be available. Meantime, as it seems to me, the matter of rate of interest is left entirely to the discretion of the Courts to say what is a harsh and unconscionable rate of interest.

It may well be that people in Uganda have been, and are, charging rates of intetrest much higher than the reasonable rate which in this case the Court has fixed at 24 per cent per annum. But even if in this case evidence had been brought that it was the general practice in Uganda to charge, say, 100 per cent on loans, that would not necessarily affect the decision of the Court under Section 26 (1). In that case it would be for the Court to say whether in its opinion the rate of interest generally charged in Uganda was, having regard to the standard of sophistication, harsh and unconscionable and ought not to be enforced by legal process. In short, evidence of the practice of people lending money in Uganda would not help the Court to a discharge of its responsibility under Section $26$ (1).

Here the Court below in the exercise of its duty and its discretion under section 26 (1) has decided that in the circumstances of this case 96 per cent per annum was a harsh and unconscionable rate of interest, and that 24 per cent was the rate which it thought just. I can find nothing in the case to justify an Appeal Court in interfering with that discretionary decision of the Court below.

In my view the appeal should be dismissed with costs.

EDWARDS, C. J.—I agree.

I would only add that it is true that the words "harsh and unconscionable" in Section 6 of the Civil Procedure (Amendment) Ordinance, 1940, seem to be taken from Section 1 of the Money-Lenders Act, 1900. In the case of Jacob Bros. v. Joicey Vol. 35 T. L. R. p. 362, Mr. Justice Darling explained how the word "unconscionable" was taken from the play "The School for Scandal", but it is interesting to note that Mr. Justice Darling did not venture to give a definition of the word "unconscionable". Some guidance may perhaps be obtained from the view which the Legislature took when enacting Section 10, Money-Lenders Act, 1927. By that section if the rate of interest is over 48 per cent, to save the transaction from being re-opened, the money-lender has to prove circumstances which show that the rate is not excessive, and the transaction not harsh and unconscionable. As Lord Justice Scrutton said, in *Reading Trust Ltd* v. Spero (1930) 1 K. B. p. 503, "In other words, at a point in the scale of interest fixed by Parliament at 48 per cent the burden of proving facts which condemn or justify the transaction, shifts from the borrower to the money-lender.

There are these minor results: (1) that interest below 48 per cent is not in itself and without more evidence adduced by the borrower, excessive. (2) That interest over 48 per cent may not be excessive if the money-lender proves other facts justifying it."

Mr. Macken sought to convince us that we should, in effect, apply in Uganda Section 10 of the English Act of 1927. For obvious reasons I do not think that we can, or ought to, do so. Finally, Mr. Macken argued that the respondent did not prove before the trial Judge that the appellant had been guilty of an act of oppression. He further argued that the appellant had shown that the interest was not excessive, in as much as he had proved that the respondent (borrower) offered little or no security, since the borrower's landed property—the title deed of which he had offered as security—was already encumbered. The short answer to this argument is that the trial Judge seems to have given due weight to all proper considerations, but nevertheless, considered that 24 per cent was a reasonable rate of interest. In so holding he acted, in my opinion, within the powers given to him by Section 26 (1) of the Civil Procedure Code, as amended by Section 6 (1) of the Civil Procedure (Amendment) Ordinance, 1940, and it is impossible for us to interfere.

For these reasons I agree that the appeal should be dismissed, with one set of costs to the respondents.

PEARSON, J.-The first submission made by this appellant is that as the Indian Contract Act is the law of contract in this dependency, is the *basis* of all law of contract, Section 6 of the Civil Procedure (Amendment) Ordinance, 5 of 1940, is to be read with it. This submission is not made out: Section 16 of the Indian Contract Act provides against undue influence: the said section of our Civil Procedure Ordinance gives this Court a new or extended power in Equity as did the Money-Lenders Act, 1900. The case C. K. Patel v. J. K. Nkata (1930) IV Uganda L. R. p. 18-was decided on the Indian Contract Act alone, as the section under consideration had not then been enacted, and the case has no bearing on its application.

The Money-Lenders Act, 1900, provides equitable relief where interest is found to be excessive and the transaction harsh and unconscionable or otherwise such that a Court of Equity would give relief. But under this provision it was said by Lord Macnaughton that "the rate of interest may be so monstrous as by itself" to show that the contract was harsh and unconscionable Samuel $v$ . Newbold (1906) A. C. 470. Section 6 which we have to apply, requires only that the "rate (of interest) agreed to be paid" shall be found "harsh and unconscionable". Here is no further reference to the transaction. We therefore have no hesitation in holding that the Court may exercise this equitable jurisdiction on forming the opinion that the interest only is unconscionably excessive, and may reduce the rate of interest on that ground alone. And, having formed that opinion, the Court has an unrestricted discretion to reduce the interest to such rate as it may think just.

I agree that the appeal be dismissed.